|Can credit-damaged buyers get home
Julie Garton-Good, GRI, DREI
When A-grade loans were the only mortgage product available, only buyers
with stellar credit could qualify.
But today, it's a whole new world. A majority of lenders are making B-, C-,
even D-grade loans to borrowers who may be saddled with a range of blemishes
from slow pays to bankruptcies.
Approximately 1.1 million people declared bankruptcy in 1996, making
blemished credit (and money lent to less-than-perfect buyers) a customized
growth industry for lenders.
Lenders would be the first to admit that heavy credit levels coupled with
life situations out of a borrower's control--like illness, divorce and death in
the family--have made picture-perfect credit rare. Wanting to make loans to all
types of borrowers, lenders are finding that customized credit allows
flexibility and greater rule-of-thumb reliability in evaluating
While all borrowers are evaluated on their own merits, most lenders want
borrowers to have reasonably stable employment, fully documented income, assets
and liabilities, and be purchasing or refinancing a single-family owner-occupied
house or condo. In other words, it's good if blemished credit is somewhat offset
by other stable, if not redeeming, qualifications.
What would C-grade credit look like? That borrower might have as many as six
late payments on installment debts (car payments) and four late payments on
revolving accounts (like credit cards) during the last 12 months--and could even
have been late twice paying his mortgage during the past year. That's a
considerably lower standard than what is required for A-grade loans.
Don't assume that lenders will embrace borrowers who can't explain
why they were late making payments, especially if hay are chronically
late payers. Lenders will still require explanations for slow payments in order
to "sell" the loan to even a C-grade loan buyer.
When used to give credit-blemished buyers a "leg up" in the
mortgage process, it's tough to beat the benefits of less than A-grade loans.